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Emerging Companies Fund

Emerging Companies Fund commentary for the calendar year ended 31 December 2023.
Published 23 Jan 2024   |   6 min read

The Emerging Companies Fund (Wholesale) (the ‘Fund’) returned 10.2% net of fees in the Year ended 31 December 2023 underperforming its benchmark which appreciated 11.4%. Similarly, the Emerging Companies Fund (Retail) grew by 9.7% net of fees in the quarter, underperforming the benchmark.

The Fund has a small-cap strategy with investments spread across small and microcap companies in Australia and New Zealand.

This underperformance can largely be attributed to poor performing names in the Healthcare sector and an underweight position in the strongly performing Consumer Discretionary sector. The funds position in Information Technology contributed positively to investment performance as did our significant underweight position in Real Estate which performed relatively poorly.

Emerging Companies (Wholesale) Fund Performance

As at 31 December 2023~

fund benchmark^
3 months 3.7 9.5
1 year p.a. 10.2 11.4
3 years p.a. -1.9 -0.3
5 years p.a. 13.3 5.5
since inception p.a. 12.3 6.3

^ Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance.

Inception date: 30/06/2015. 

Emerging Companies (Retail) Fund Performance

As at 31 December 2023~

fund benchmark^
3 months 3.4 9.5
1 year p.a. 9.7 11.4
3 years p.a. -2.4 -0.3
5 years p.a. 12.7 5.5
since inception p.a. 11.6 6.3

^ Benchmark: S&P ASX Small Industrials Index. Past performance is not a reliable indicator of future performance.

Inception date: 30/06/2015. Source: 

Contributors and detractors

Top 3 contributors to Fund return


Nuix (NXL AU)


Gentrack (GTK AU)


Helia (HLI AU)

Top 3 detractors from Fund return


Bigtincan (BTH AU)


Praemium (PPS AU)


Healius (HLS AU)
  • Nuix (NXL AU) was the fund’s top performing stock after a positive update at their annual general meeting. The technology company stated it had a positive start to FY24 and re-iterated targets to grow annual contract value by around 10% in FY24. Management is expecting to be underlying cashflow positive for the full year. Under this management team, the business has seen significant transformation for the product offering and engagement with customers, which has yielded positive results.

  • Gentrack (GTK AU) share price strengthened following a strong earnings result and investor day update. The FY23 result showed strong revenue growth of 34% driving GTK’s biggest profit in 5 years, with significant free cash flow generation leaving GTK’s balance sheet in a very strong position going into FY24. The Investor Day highlighted the global growth potential of GTK’s modern utilities billing software offering as large incumbent providers struggle to keep pace with changing customer requirements.

  • Helia (HLI AU) has experienced a favourable claims environment due to a strong employment market and resilient house prices, with actual conditions better than expected. This has resulted in a period of share buybacks, with a current share buyback of $100 million and the company declaring sustainable annual dividends of 28 cents per share enhancing HLI’s appeal as an income stock. HLI recently gained S&P/ASX 200 index inclusion. Benefits of lower claims experience may continue if macroeconomic conditions hold. This is offset by lower housing credit growth and new business written which should be cyclical in nature.

  • Bigtincan (BTH AU) shares fell after an update was provided in November. The company stated that the change of control proposal, which had put the ownership of the company in limbo for nearly a year, had concluded with no binding proposal. The guidance on FY24 revenue was modestly below expectations, but the company is focusing on managing a cost base re-set, with the objective to target free cashflow in FY24. This pivot on the cost base will put the company in a more sustainable position to balance growth and free cashflow.

  • Praemium (PPS AU) provided a trading update at their annual general meeting, which fell short of market expectations. Lower revenue margins due to mix coupled with cost pressures across the business means that 1H24 EBITDA will be ~20% lower than previous corresponding period. We retain our position in Praemium as it has a strong balance sheet and is trading at a material discount compared to the other listed contemporary platforms, HUB24 and Netwealth.

  • Healius (HLS AU) shares fell throughout the period as diminishing Covid-19 testing revenues combined with solvency concerns around its balance sheet. Towards period end, these factors resulted in a capital raise required by lenders to pay down debt. The raise was accompanied by full-year guidance that implied a material 1H vs 2H skew at the midpoint and was priced at a 30% discount, further impacting the share price.


Nuix has seen significant business transformation, particularly in evolving the product offering and engaging with their customers, which has yielded positive results.

Portfolio changes

Additions to the Fund
  • Janison Education (JAN AU) We acquired shares in Janison Education having divested at higher prices. Jansion provides high value online education assessment tools used by leading education institutions locally and in the United Kingdom.

  • Aroa Biosurgery (ARX AU) – We acquired shares in Aroa Biosurgery having divested at higher prices. Aroa sells regenerative sheep based soft tissue surgical repair material, largely into the US market.

  • IPH (IPH AU) – IPH is an international intellectual property services group and is the largest filer of patents and trademarks in Australia and Canada. We believe that IPH is trading on an undemanding valuation and an attractive dividend yield.

Reductions from the Fund
  • Blackmores (BKL AU) – The Fund benefited from a takeover leading Australian vitamin company Blackmores from Japanese conglomerate Kirin.

  • Healius (HLS AU) – We divested our Healius shareholding as, whilst we fundamentally like the pathology sector, we view Healius as the expensive opportunity with higher risk given its FY24 guidance skew. It currently also trades at a material premium to SHL and ACL, which is difficult to justify in light of the continued risks.

  • Nitro Software (NTO AU) – The Fund benefited from a takeover in PDF productivity and e-signature business Nitro Software by private equity early in 2023.


Bigtincan shares fell following an update in November informing investors a change of control proposal had concluded with no binding offer.

We continue to anticipate strong takeover activity with the corporate and private equity acquisition activity witnessed in 2023 continuing into 2024.
Sector allocation

Sector overweights
Healthcare, Information Technology, Communication Services, Cash

Sector underweights
Consumer Discretionary, Real Estate, Materials, Industrials

Outlook for the Fund

The interest rate environment is now more supportive for equities with 10-year government bond interest rates down from their recent peaks and the market now expecting the RBA to cut base interest rates in 2024 on the back of lower inflationary expectations. Investor interest has been primarily focused on the large cap names to date, however we anticipate investors will increasingly invest down the market capitalization spectrum as they get comfortable with the interest rate outlook. We believe investor sentiment will improve in 2024. We continue to anticipate strong takeover activity with the corporate and private equity acquisition activity witnessed in 2023 continuing into 2024.

We have reasonable cash balances which we are looking to deploy into the small and microcap part of the market in 2024.

See Fund info

This is general information only and is not intended to provide you with financial advice or take into account your individual investment objectives, financial situation or needs. You should obtain and consider the relevant Financial Services Guide, Product Disclosure Statement and Target Market Determination relating to this product before making a decision

*Total returns are calculated using the sell (exit) price, net of management fees, transaction costs and performance fees where applicable and are calculated based on distributions being reinvested. The actual returns received by an investor will depend on the timing of the buy and exit prices of individual transactions. Distributions and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.

Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the Fund may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the Fund may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.

This commentary may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Australian Ethical accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.

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